Published 4:00 am, Thursday, May 8, 2003

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** FILE ** Katrina is shown in this 2000 file photo. Authorities are still trying to assess the damage caused to U.S. intelligence efforts and weapons programs by , a high-profile Republican activist, who is accused of being a double agent for China and of sleeping her way into the confidence of two well-placed FBI agents. (AP Photo/Sing Tao Daily) less

** FILE ** Katrina is shown in this 2000 file photo. Authorities are still trying to assess the damage caused to U.S. intelligence efforts and weapons programs by , a high-profile Republican activist, who is ... more

A retired FBI agent accused of having an affair with suspected Chinese double agent Katrina Leung was indicted Wednesday on charges that he negligently allowed her access to classified reports she then passed on to China.

The spy scandal is the latest to rock the FBI, and it has prompted the agency to investigate each of its thousands of intelligence informants to ensure they are being properly handled by field agents and are providing accurate information.

.5 The inquiry is being led by an intelligence division task force reporting directly to Deputy Director Bruce Gebhardt, the FBI's second-in- command. It involves checking informants' information for consistency and reliability by comparing it with other intelligence.

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"Counterintelligence and counterterrorism are top priorities, and human sources are the backbone," said FBI spokesman Mike Kortan. "We're taking a top- to-bottom look at every key asset to ensure that the information we're getting is valid."

Former San Francisco FBI agent William Cleveland, who supervised the Chinese intelligence squad, is also alleged to have had a sexual relationship with Leung from 1989 until 1993. He retired in 1993 and went on to a security job at Lawrence Livermore National Laboratory. He resigned that job following the April 9 arrest of Leung and Smith and has not been accused of any wrongdoing.

The indictment returned in Los Angeles stems from Smith's recruitment in 1982 of Leung, 49, to spy on China and his alleged affair with her that began later that year.

Leung was paid more than $1.7 million by the FBI over the years for her information about China, according to court documents.

Prosecutors accuse Leung, a prominent Los Angeles socialite and political activist code-named "Parlor Maid" by the FBI, of pilfering classified reports from Smith's briefcase during his visits to her home.

Federal authorities arrested Leung and Smith on April 9. Leung remains behind bars without bail and is expected to be indicted today. Smith is free on $250,000 bail.

Both have maintained their innocence.

The indictment accuses Smith of four counts of "honest services" wire fraud,

meaning he deprived the FBI of his honest services by failing to disclose his sexual relationship with Leung, failing to disclose her unauthorized contacts with Chinese intelligence agents and vouching for her trustworthiness even after learning of her work for China.

The FBI suspected Leung was a double agent in late 1990 or early 1991 after it obtained recordings of a conversation between a woman Cleveland later recognized as Leung and a Chinese intelligence agent, according to the indictment.

Smith was told of the incident and left to deal with it himself. He assured his supervisors it had been resolved.

What followed, according to the indictment, was a campaign by Smith to deceive the FBI by stating in more than 20 reports that Leung was a reliable informant. He never disclosed his alleged affair with Leung or her contacts with Chinese agents, the indictment states.

The two negligence charges accuse Smith of improperly removing two classified reports from the FBI field office and allowing Leung to access them.

One detailed an investigation code-named "Royal Tourist" that targeted Chinese intelligence operations against the U.S. The other concerned an FBI inquiry of Chinese fugitives.

Smith faces 40 years in prison if convicted of all six counts.

Smith joined the FBI on Oct. 19, 1970. He was transferred one year later to the Los Angeles office, where he oversaw Chinese counterintelligence. He retired from the FBI in November 2000.

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